Recreational marijuana industry set for takeoff

A marijuana plant is seen before harvesting at a rural area near Corvallis, Ore., in September. AP FILE PHOTO

Second of three parts examining issues related to the implementation of recreational marijuana in Massachusetts. By Shannon Golden

BOSTON -- Massachusetts already has one of the highest-performing economies in America, according to recent surveys, along with the best unemployment rate in 16 years. So how can things get better? The emergence of a new industry -- devoted to legalization of marijuana.

The decision by Bay State voters to legalize the use of recreational marijuana has created an industry that brings with it additional tax revenue, job creation, marijuana and accessory sales, and even a new form of tourism. Recreational marijuana is expected to become a $1.17 billion industry by 2020.

"With the new-recreational marijuana legislation, there is potential for larger revenue than (generated by) cigarettes and alcohol," said Randall Ellis, an economics professor at Boston University and former president of the American Society of Health Economists.

Ellis, a supporter of legalization, said the eventual shape of that industry will emerge from work of a new legislative committee working to clarify the law slated to go into effect in July 2018.

Ellis explained an important aspect of this legislation is the opportunity for "canna-tourism" to emerge, where people travel to a region or state to take advantage of legalized marijuana.

Research from multiple marijuana data and investment firms predict Massachusetts can become such a travel destination.

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If correct, an influx of tourists to Massachusetts can expand the economic impact of this legislation far beyond simply the marijuana industry.

Tourism boost

In Colorado, marijuana-specific tourism companies offer tourists bus tours to see industrial growers and smoke; marijuana-friendly hotels that allow smoking in rooms; classes and activities such as 'cooking with cannabis' or 'puff, pass, and paint' classes; and even services at hotels that include an in-room cannabis infused massage.

In 2015, 16.4 million people visited Colorado, over a million more from the previous year. According to a study by the Colorado Tourism Office in 2015, 23 percent of tourists said the availability of legal marijuana positively influenced their decision to visit the state.

Another study done by the Colorado Department of Revenue in 2014 showed that out-of-state visitors make up half of the marijuana sales in Denver and 90 percent in mountain communities. The study also found that throughout the state, tourists account for 7 percent of marijuana demand.

Although the idea of a new tourism genre is intriguing, the main impact on the economy will come from sales and tax revenue.

According to a 2016 report by the Special Senate Committee on Marijuana, Massachusetts could collect anywhere from $50 to $60 million in annual taxes and fees within the first few years of legalization.

Colorado revenue

Colorado collected $129 million in marijuana-related tax revenue over a 12-month period last year and Washington state totaled $220 million. Both states legalized recreational marijuana in 2012 ballot initiatives. In Oregon, where a law took effect in 2015, marijuana-related tax revenues are yielding around $4 million per month.

Tax collections here would likely be lower because unlike other states, Massachusetts does not tax medical-marijuana purchases.

"It is difficult to extrapolate these data for Massachusetts as the proposed retail tax rate for the state is significantly less than that imposed in other jurisdictions," said Paul Armentano, the deputy director of the National Organization for the Reform of Marijuana Laws (NORML), a Washington D.C. based pro-legalization lobbying organization. "Further, lawmakers are discussing adjusting/raising this rate prior to the inception of retail sales."

The original referendum called for a state sales tax of 6.25 percent and an excise tax of 3.75 percent. Local municipalities will also have the option of placing an additional tax of up to 2 percent, bringing the total tax on marijuana to 12 percent.

These tax rates are extremely low compared to other states with legalized recreational marijuana, Armentano said, noting Colorado imposes a 15 percent excise tax, a 10 percent state tax on sales, a sales tax of 2.9 percent, and varied local taxes.

Washington state taxes marijuana at 37 percent, Oregon at 17 percent, and Alaska at 25 percent.

Sen. Jason M. Lewis, D-Winchester, who spent time in Colorado studying the effects of legalization, believes the Massachusetts tax rate is too low and would not be enough to handle the costs that legalization will impose on public health and law enforcement.

"Because the tax is so low, it likely won't generate enough revenue to cover all of the costs that state and local cities and towns would have to incur in terms of the regulating and the licensing of this industry, public-health costs, public-safety costs, and agricultural costs," Lewis told the Amherst Wire last November.

Those rates and other provisions of the voter-approved law are being reviewed by a new Joint Committee on Marijuana Policy.

Armentano explained that the creation of a regulated marijuana industry allows for legal sales to take the place of illegal black market operations.

"Just as alcohol prohibition took the production and sale of booze out of the hands of licensed businesses and placed it into the hands of organized crime, marijuana prohibition takes the retail cannabis market away from licensed entrepreneurs and places it into the hands of black market criminals and cartels that settle their business disputes with violence rather than through courts of law," Armentano explained.

"Legalizing and regulating the adult use of cannabis provides necessary controls and transparency to the existing market, allowing regulators to better govern who can legally produce and distribute the product as well as who may legally consume it."

With the transfer of marijuana sales in Massachusetts to a legalized and regulated industry also brings the opportunity for new businesses and marijuana-related job creation.

"With legalization comes the opportunity for aspiring growers, and existing medical patient growers, to bloom into a cottage industry," said Peter Bernard, Director and President of Massachusetts Grower Advocacy Council. "This not only creates jobs, it takes something that used to go to the black market and puts it into legitimate revenue streams."

He said that since the referendum passed in November there has already been an increase in the need for people to work in marijuana-related stores and a need for material.

A new report from a business intelligence firm, New Frontier Data, projects the creation of over a quarter of a million jobs for American workers across the U.S. by 2020.

Bernard expressed his hopes for home growth and sales to be legal one day as well. He said this will allow people extra income that the state can tax and will take a bite out of the black market.

"Why would you take the risk to grow and sell if you can do it legally," Bernard said.

Aside from job creation, the new industry can be lucrative for retailers. A 2016 study done by the Marijuana Policy Group that found that each dollar spent on retail marijuana in Colorado, both recreational and medical, generated $2.40 in economic activity. There are over 454 retail manufacturers and more than 1,300 marijuana-related businesses since the Colorado law went into effect in 2014.

A recent Boston Globe article discussed other industries than can benefit from marijuana legalization. Contractors converting facilities into marijuana greenhouses; heating, ventilation, and air condition mechanics working to properly keep plants; security guards to watch over the drugs; scientists to test the drugs; and even chefs to create marijuana based snacks.

Underlying the potential for job creation and business growth is a simple reality, Bernard said.

"The most important part is that the money will stay here and not go to a criminal element," Bernard said. "The money will go to hard-working people who are trying to feed their families and make a living."

That's a view not shared by those opposed to legalization.

Citizens Against Legalizing Marijuana (CALM), a political action committee based in California believes that legalization will not only cost tax-payers money but also impact the workforce, creating less qualified workers.

"The proliferation of pot will affect our workforce, bringing a slower upward mobility to our citizens and stifling their income as well as the taxes they would generate," according to a statement on CALM's website. "Less qualified workers will hurt employment and our economy as a whole."

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